How could they take advantage of Indias growth potential?.
India was proving to be one of the more difficult Asian markets to penetrate due to the sheer number of competitors. Currently the subcontinent boasts more than 2500 parcel carriers and courier services all competing to differentiate themselves based on cost speed and territorial coverage. Larger players have a clear advantage with respect to infrastructure business-consumer interface and speed of delivery. Smaller or more local firms tend to have better access to local information and ease of penetration at the domestic level (see Exhibit 13 for market share data Exhibit 14 for performance metrics and Exhibit 15 for key success factors respectively). These different approaches are reflected in their respective investments in information systems: larger firms devote close to 20 percent of their development funds to information technology compared to just over 7 percent for smaller firms.
Blue Dart-DHL Express is the clear market leader in both the international and domestic segments with a combined market share three times higher than that of the nearest competitor.56 Prior to its acquisition by DHL Blue Dart had an 8 percent share in the non-document cargo and road freight sector. The next largest competitor in the international segment is TNT which has double the market share of FedEx and UPS.57 AFL GATI and First Flight are Blue Dart-DHLs main challengers in the domestic sector. See Exhibit 16 for a comparison of the stock performance of some of these key competitors.
Started in 1989 GATI has become a leader in express cargo delivery. With operations touching 603 out of 611 districts in India GATI is one of the most sought-after freight carriers in the country.58 The company covers 200000 miles every day and claims to have brought India and the world closer by
virtue of their deeply entrenched network and domain knowledge. In recent years GATI has diversified both its services and its geographic reach. GATI now offers distribution and supply chain management solutions as well as delivery services and has spread across the Asian subcontinent. While expanding its international presence through the establishment of offices in Singapore Hong Kong China and Sri Lanka GATI continues to develop highly focused expertise in India-centric operations.
Of course all of these private companies also compete against the Indian Department of Posts the government-run postal service. The Department of Posts has the largest network of post boxes in the world and close to 90 percent of this network spans rural India. The Department also offers express delivery through its Emergency Mail Service (EMS) which comprises 13 percent of the express market share in India.59 The Post Office (Amendment) Bill of 2006 gives the Department a monopoly in the delivery of small letters and packages (weighing less than 0.66 lbs) limits foreign direct investment in the industry to 49 percent and requires all private carriers to participate in an expensive and cumbersome registration system. Every registered service provider with a turnover of $50000 or more is required to deposit 10 percent of its annual turnover to a Universal Service Obligation Fund (USO Fund).60 Despite its legal mandate a survey of users of delivery services carried out by the Indian Institute of Management revealed that 60 percent of consumers did not use India Post. The 40 percent that did use it sent only letters or documents (but not packages). For all other shipments customers preferred express delivery service providers for their reliability and accountability.
What Lies Ahead?
At the end of the day Ms. Page gathered up the remaining reports shut down her computer and headed out to her car. She figured shed catch up on some more light reading once she got home. At least she was starting to feel like she had a better sense of what UPS had done thus far as well as some of the obstacles the company faced if they were to penetrate the Indian market more deeply. How could they take advantage of Indias growth potential? Did UPSs strategy of promising delivery to every address in their area of reach make business sense in the Indian context? Was it possible to overcome the numerous challenges that this highly regulated yet underdeveloped economy presented?
Which global strategy should they apply? Could they decentralize decision making and adopt a strategy that would make it easier to incorporate the diverse local conditions of India? Which segment would prove to be most profitable: business-to-business consumer-to-consumer or the emerging business-to-consumer channel? How quickly would the advent of the new credit-card generation change the scope of e-commerce in the country? Once they decided what activities to pursue what was the best means of accomplishing UPSs business objectives? Could they use their current strongholds to grow organically or would additional alliances be a better way to go? Perhaps they should follow the model of DHL and pursue an acquisition instead. The dynamic business environment in India surely needed a dynamic strategy and it was up to Ms. Page to figure out how to proceed from here. . . .
EXHIBIT 1 UPS Income Statement (U.S. $ in millions)
Years Ended December 31
2010 2009 2008 2007
Revenue $49545 $45297 $51486 $49692
Operating Expenses:
Compensation and benefits 26324 25640 26063 31745
Repairs and maintenance 1131 1075 1194 1157
Depreciation and amortization 1792 1747 1814 1745
Purchased transportation 6640 5379 6550 5902
Fuel 2972 2365 4134 2974
Other occupancy 939 985 1027 958
Other expenses 3873 4305 5322 4633
Total Operating Expenses 43671 41496 46104 49114
Operating Profit 5874 3801 5382 578
Other Income and (Expense):
Investment income 3 10 75 99
Interest expense (354) (445) (442) (246)
Total Other Income and (Expense) (351) (435) (367) (147)
Income Before Income Taxes 5523 3366 5015 431
Income Tax Expense 2035 1214 2012 49
Net Income 3488 2152 3003 382
Basic Earnings Per Share
Diluted Earnings Per Share
Source: SEC.gov.
IT 2 UPS Consolidated Balance Sheets (U.S. $ in millions)
December 31
2010 2009 2008 2007
ASSETS
Current Assets:
How could they take advantage of Indias growth potential?
